AMENDED OPINION*

This opinion is subject to revision before final

publication in the Pacific Reporter

2018 UT 10

 IN THE

SUPREME COURT OF THE STATE OF UTAH

FIRE INSURANCE EXCHANGE,

Appellee,

v.

ROBERT ALLEN OLTMANNS,

Appellant.

No. 20160304

Filed February 28, 2018

On Certiorari to the Utah Court of Appeals

Second District, Farmington

The Honorable Glen R. Dawson

No. 090700825

Attorneys:

Stewart B. Harman, Joel D. Taylor, Salt Lake City, for appellee

Donald L. Dalton, Salt Lake City, for appellant

JUSTICE HIMONAS authored the opinion of the Court, in which 

CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE LEE,

and JUSTICE PEARCE joined.

JUSTICE DURHAM filed an opinion concurring in part and concurring 

in the result.

Due to her retirement, JUSTICE DURHAM did not participate in the 

Petition for Rehearing. JUSTICE PETERSEN became a member of the Court 

on November 17, 2017, and, accordingly, participated in the Petition for 

Rehearing
FIRE INSURANCE EXCHANGE v. OLTMANNS

Amended Opinion of the Court

2

JUSTICE HIMONAS, amended opinion of the Court:

INTRODUCTION

¶1 Robert Oltmanns was named as a defendant in a personal 

injury case. He filed a claim with his insurer, Fire Insurance Exchange, 

who questioned whether the claim was covered under the policy. 

Rather than deny the claim outright, Fire Insurance brought a 

declaratory judgment action to determine whether the claim was 

covered under Mr. Oltmanns’s policy. The court of appeals ultimately 

held that it was covered, and Mr. Oltmanns filed a counterclaim 

seeking attorney fees for the declaratory judgment action, arguing that 

it was brought in bad faith. The question presented for this court is 

whether the court of appeals erred in concluding that Fire Insurance’s 

 

* Mr. Oltmanns filed a Petition for Rehearing, which we deny. Based 

on undisputed material facts, the district court determined that, with 

respect to the “jet skis” exclusion, Fire Insurance “was faced with a 

fairly debatable question” of coverage. The court of appeals affirmed, 

concluding that the term was debatable as a matter of law. And we 

affirmed the decision of the court of appeals. Put differently, and 

perhaps more plainly, the trial court, the court of appeals, and this 

court have all concluded that whether the “jet skis” exclusion clearly 

and unambiguously applied to Mr. Oltmanns’s claim was fairly 

debatable, making summary judgment for Fire Insurance appropriate.

We would ordinarily stop here and refrain from making any 

additional comments regarding the Petition. But the rhetoric Mr. 

Oltmanns’s counsel chose to employ in the Petition takes this case out 

of the ordinary. Counsel accuses us of being biased for insurers: “for 

some reason, since it involved the filing of a declaratory judgment 

action by an insurance company, the normal rules of contract 

interpretation—and civil procedure—did not apply.” He then goes on 

to charge that we “unfairly meted out” “savagery” on his client’s case. 

This sort of language, which questions motives rather than ideas, 

reflects an insufficiency of thought and ineffective advocacy and has no 

place in filings before the trial or appellate courts of this state. 

We admonish counsel for his use of such language. And we take 

this opportunity to remind him of paragraph 3 of the Utah Standards of 

Professionalism and Civility—“Lawyers shall not, without an adequate 

factual basis, attribute to other counsel or the court improper motives, 

purpose, or conduct.”
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Amended Opinion of the Court

3

denial of Mr. Oltmanns’s insurance claim was “fairly debatable,” thus 

negating Mr. Oltmanns demand for attorney fees and expenses for the 

coverage dispute and appeal. We affirm the court of appeals’ decision 

to uphold the summary judgment of the district court.

BACKGROUND

¶2 In 2006, Mr. Oltmanns was piloting a Honda F-12 AquaTrax 

personal watercraft that was towing Mr. Oltmanns’s brother-in-law, 

Brady Blackner. Mr. Blackner sustained injuries, and filed a lawsuit 

against Mr. Oltmanns. Mr. Oltmanns tendered the defense to Fire 

Insurance Exchange under his homeowner’s insurance policy. The 

insurance policy contains the following provision under Section II -

Liability, Coverage E – Personal Liability:

We pay those damages which an insured becomes 

legally obligated to pay because of bodily injury, 

property damage or personal injury resulting from an 

occurrence to which this coverage applies. . . . At our 

expense and with attorneys of our choice, we will defend 

an insured against any covered claim or suit. We are not 

obligated to pay defense costs, including attorneys’ fees of 

any claim or suit where you select an attorney not chosen 

by us because there is a dispute between you and us over 

coverage. We may investigate and settle any claim or suit 

that we consider proper. Our obligation to defend any 

claim or suit ends once we have paid our limit of liability.

In the same liability section of the insurance contract, in a subsection 

titled “Additional Coverages,” Fire Insurance agrees to pay “[i]n 

addition to the limits of liability . . . all costs we incur in the settlement 

of a claim or defense of a suit with attorneys of our choice.”

¶3 Fire Insurance conducted an in-house review of Mr. 

Oltmanns’s claim and then submitted his claim to outside counsel for a 

coverage opinion. Whether the accident was deemed covered was 

uncertain because of the following exclusion in its liability coverage:

We do not cover bodily injury [that] . . . .

7. results from the ownership, maintenance, use, 

loading or unloading of:

a. aircraft

b. motor vehicles

c. jet skis and jet sleds or
FIRE INSURANCE EXCHANGE v. OLTMANNS

Amended Opinion of the Court

4

d. any other watercraft owned or rented to an 

insured and which:

(1) has more than 50 horsepower inboard or 

inboard-outdrive motor power; or

(2) is powered by one or more outboard motors 

with more than 25 total horsepower; or

(3) is a sailing vessel 26 feet or more in length.

Exclusions 7c and d do not apply while jet skis, jet 

sleds or watercraft are stored.

¶4 Fire Insurance also asked Mr. Oltmanns’s attorney to continue 

to represent him, indicating that Fire Insurance might reimburse him for 

his fees and expenses should the accident be deemed a covered 

occurrence. Fire Insurance’s outside counsel advised Fire Insurance that 

he believed there was a high probability that the incident would not be 

covered, but that Fire Insurance should authorize him to file a 

declaratory judgment action seeking a determination of its 

responsibility to Mr. Oltmanns under the policy. He advised this course 

of action because “[u]nder Utah law, a liability insurance carrier’s duty 

to defend is broader than its duty to indemnify,” and “[i]t would be 

dangerous to simply deny coverage because Mr. Blackner and 

Mr. Oltmanns may enter into an agreement to stipulate to a large 

judgment and Mr. Oltmanns could then assign his claims against Fire 

Insurance Exchange to Mr. Blackner.” 

¶5 Fire Insurance filed the action and then moved for summary 

judgment. The district court ruled in favor of Fire Insurance, finding 

that the exclusion precluded coverage. Mr. Oltmanns appealed and the 

court of appeals reversed, holding that the term “jet ski” as used in the 

exclusion was ambiguous and construed the contract against the 

insurer in favor of the insured. Fire Ins. Exch. v. Oltmanns, 2016 UT App 

54, ¶ 5, 370 P.3d 566. Fire Insurance then settled with Mr. Blackner for 

the policy limit of $300,000 and paid Mr. Oltmanns’s attorney fees and 

expenses for his defense of that claim. 

¶6 Fire Insurance did not pay for Mr. Oltmanns’s costs of 

defending the declaratory judgment action. Mr. Oltmanns then filed a 

counterclaim against Fire Insurance in the still open declaratory 

judgment action seeking “damages for breach of the implied covenant 

[of good faith and fair dealing], which include his attorney fees for 

prosecuting this coverage action and the successful appeal” as well as 

“damages for the severe emotional distress that was caused by the 

coverage denial and his self-defense of a significant personal injury 
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Amended Opinion of the Court

5

claim.” Fire Insurance once again moved for summary judgment and 

for a motion to dismiss. The district court granted summary judgment 

finding that Fire Insurance’s actions were reasonable because the 

coverage issue was “fairly debatable.” Fire Insurance then withdrew its 

motion to dismiss. Mr. Oltmanns appealed and the court of appeals 

affirmed the district court, holding that “when an insurance company 

proceeds in a reasonable way to resolve a difficult coverage question, 

its eventual loss at the appellate level does not foreclose a 

determination that an issue of interpretation was fairly debatable, as 

was the case here.” Id. ¶ 15.

STANDARD OF REVIEW

¶7 This case comes before us on certiorari review from the court of 

appeals decision. “[W]e review the court of appeals’ decision for 

correctness. The review focuses on whether the court of appeals 

correctly reviewed the trial court’s decision [to grant summary 

judgment to Fire Insurance] under the appropriate standard of review.” 

Orvis v. Johnson, 2008 UT 2, ¶ 6, 177 P.3d 600 (citation omitted). “We 

review the district court’s grant of summary judgment for correctness.” 

Torian v. Craig, 2012 UT 63, ¶ 13, 289 P.3d 479 (citation omitted). Under 

Utah Rule of Civil Procedure 56, we view any facts and any reasonable 

inferences “in the light most favorable to the party opposing summary 

judgment.” Farmers Ins. Exch. v. Call, 712 P.2d 231, 237 (Utah 1985) 

(citation omitted).

ANALYSIS

¶8 In both his trial- and appellate-level briefing, Mr. Oltmanns 

advanced the same basic argument: because it wasn’t “fairly debatable” 

whether the term “jet ski” encompassed a Honda F-12 Aquatrax (in 

Mr. Oltmanns view, it obviously did not), Fire Insurance breached its 

duty to Mr. Oltmanns by seeking a declaratory judgment that the “jet 

ski” exclusion in Mr. Oltmanns’s insurance policy encompassed bodily 

injuries resulting from the use of that jet-ski-like watercraft. As 

Mr. Oltmanns has put it:

[Fire Insurance] relied on the advice of counsel [that an 

Aquatrax would be encompassed by the “jet ski” policy 

exclusion] in refusing the tender of defense. However, the 

advice was patently flawed. Therefore, the claim was not 

“fairly debatable,” and [Fire Insurance] breached the 

insurance contract and the implied duty of good faith 

[and] fair dealing.
FIRE INSURANCE EXCHANGE v. OLTMANNS

Amended Opinion of the Court

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¶9 On Mr. Oltmanns’s account of the governing law, then, 

whether Fire Insurance breached its duties to Mr. Oltmanns turned 

entirely on whether the “jet ski” exclusion’s applicability to an 

Aquatrax was fairly debatable: If it was fair for Fire Insurance to argue 

that the “jet ski” exclusion encompassed an Aquatrax then there was no 

breach; otherwise, according to Mr. Oltmanns, there was.

¶10 Mr. Oltmanns’s argument fails on its own terms. It was more 

than fair for Fire Insurance to argue that its policy’s “jet ski” exclusion 

applied to bodily injuries resulting from the use of an Aquatrax. In 

litigating whether the “jet ski” exclusion encompassed Aquatrax 

accidents, Fire Insurance put forward substantial usage evidence 

suggesting that the term “jet ski” is, in Fire Insurance’s words, a 

“genericized term for any type of personal watercraft.” Fire Insurance’s 

argument is bolstered by the fact that “jet ski” is frequently treated as a 

generic term in cases, ordinances, and dictionaries. 1 The cited 

 

1 See, e.g., Calhoun v. Yamaha Motor Corp., U.S.A., 40 F.3d 622, 624 (3d 

Cir. 1994) (noting that a “Wavejammer” is “a type of jet ski 

manufactured by Yamaha Motor Corporation”); 4 MATTHEWS 

MUNICIPAL ORDINANCES § 52:32 (2d ed. 2017) (“Boat shall mean any 

watercraft, including sea planes when not airborne, sailboat, ‘jet ski,’ 

‘aqua-trike’ or similar type of watercraft”; “Motorboat shall mean any 

boat operated through use of a motor or motorized propulsion, 

including ‘jet skis[]’“); Jet Ski, WIKIPEDIA, https://en.wikipedia.org/

wiki/Jet_Ski (last visited Oct. 13, 2017) (“The term [jet ski] is often used 

generically to refer to any type of personal watercraft used mainly for 

recreation, and it is also used as a verb to describe the use of this type of 

water vehicle.” (citation omitted)); Jet Ski,FREE DICTIONARY

http://medical-dictionary.thefreedictionary.com/Jet+Ski (last visited 

Oct. 13, 2017) (defining “jet ski” as “[a] motorised personal watercraft 

in which one or two people ride on the water in much the same way as 

one rides a motorcycle”); Jet Ski, LONGMAN DICTIONARY OF 

CONTEMPORARY ENGLISH http://www.ldoceonline.com/dictionary/jetski (last visited Oct. 13, 2017) (A “jet ski” is “a small fast vehicle on 

which one or two people can ride over water for fun.”); Jet Ski, 

WORDWEB ONLINE http://www.wordwebonline.com/search.

pl?w=jet+ski (last visited Oct. 13, 2017) (defining “jet ski” as “[a] jetpowered watercraft with a seat and handlebars, ridden in a similar way 

to a motorbike”); see also Trial Judge Properly Restricted Expert Testimony 

in Jet Ski Death Suit Calhoun v. Yamaha Motor Corp., 1 NO. 1 ANDREWS 

(cont.)
Cite as: 2017 UT 81

Amended Opinion of the Court

7

dictionaries, ordinances, and cases show that the public uses the 

trademarked term ”jet ski” generically, at least on occasion. That 

suggests that the scope of the term may be fairly debatable. 

¶11 That conclusion is also confirmed by the context of the ”jet ski”

exclusion in the insurance policy. The governing language excludes 

injury resulting from “the ownership, maintenance, use, loading or 

unloading of aircraft, motor vehicles, jet skis and jet sleds, or any other 

watercraft owned or rented to an insured.” (numbering omitted). With 

the exception of jet ski, each of the excluded terms unambiguously 

refers to the generic name for a category of items. None refers to a 

specific brand. This supports a generic reading of “jet ski” under the 

noscitur a sociis canon of construction. See Third Nat’l Bank in Nashville v. 

Impac Ltd., Inc., 432 U.S. 312, 322 (1977) (“[W]ords grouped in a list 

should be given related meaning.“ (footnote omitted)). And that further 

indicates that the scope of “jet ski” is at least fairly debatable.

¶12 True, in a decision from an earlier phase of this case—a 

decision not currently before us—the court of appeals concluded that 

the “jet ski” exclusion did not apply to injuries resulting from the use of 

an Aquatrax, apparently declaring the term “jet ski” irredeemably 

obscure. See Fire Ins. Exch. v. Oltmanns, 2012 UT App 230, ¶¶ 9–10, 285 

P.3d 802 (“Even discounting the bizarre possibility that [Fire Insurance] 

meant to refer only to one Kawasaki watercraft model, it still cannot be 

definitively said what the insurer intended . . . .”). But, candidly, the 

 

EXPERT & SCI. EVIDENCE LITIG. REP. 13 (2003) (Expert testimony was 

allowed in a case “to explain how jet skis operate and the differences 

between Yamaha’s jet ski and other brands and models.”). But see

Definition of “Jet Ski”, CAMBRIDGE DICTIONARY http://dictionary.

cambridge.org/us/dictionary/english/jet-ski (last visited Oct. 13, 2017) 

(defining “jet ski” as “a brand name for a type of small water vehicle 

for one or two people that is moved forward by a fast stream of water 

being pushed out behind it”); Jet Ski, DICTIONARY.COM

http://www.dictionary.com/browse/jet-ski (last visited Oct. 13, 2017) 

(“Jet ski” is a “[t]rademark” for “a brand of personal watercraft.”); Jet 

Ski, THE FREE DICTIONARY http://www.thefreedictionary.com/Jetskiing (last visited Oct. 13, 2017) (defining “Jet Ski” as “[a] trademark 

for a personal watercraft”).
FIRE INSURANCE EXCHANGE v. OLTMANNS

Amended Opinion of the Court

8

correctness of the court of appeals’ decision is as open to debate as the 

issue it resolved. 

¶13 The concurrence, however, doesn’t affirm the court of appeals

on the basis that Mr. Oltmanns’s argument fails on its own terms. 

Instead, the concurrence concludes that Mr. Oltmanns waived his 

argument that he was entitled to attorney fees because Fire Insurance 

breached its duties when it sought a declaratory judgment that it did 

not have to defend Mr. Oltmanns in connection with the Aquatrax 

accident. It then devotes many pages of dicta to its view that 

Mr. Oltmanns’s “fair debatability” argument analyzed the problem the 

wrong way. According to the concurrence, Mr. Oltmanns should have 

characterized his claims against Fire Insurance as “third-party claims.” 

Infra ¶¶ 26–27. Under this characterization of Mr. Oltmanns’s lawsuit, 

the concurrence tells us that “fair debatability” is irrelevant. Instead, 

because it arose in the third-party context, the appropriateness of Fire 

Insurance’s decision to file a declaratory judgment action turned not on 

whether the “jet ski” coverage question was fairly debatable, but on 

whether Fire Insurance’s position was “reasonable under the 

circumstances.” Infra ¶ 28. 

¶14 The concurrence then proceeds to outline the entire syndrome 

of duties and obligations that an insurer owes an insured in the thirdparty context. Because Fire Insurance’s declaratory judgment action 

arose in the third-party context, the concurrence says that Fire 

Insurance was operating under a “heightened duty” to act as an agent 

or fiduciary for Mr. Oltmanns. Infra ¶¶ 41–42. It therefore owed Mr.

Oltmanns four duties:

(1) [T]he duty to defend an action brought against 

[Mr. Oltmanns] that could conceivably fall within the 

scope of the policy coverage (as defined by the insurance 

contract), (2) the duty to be fair and reasonable in 

diligently investigating the validity of claims, (3) the duty 

to indemnify [Mr. Oltmanns] for valid claims, and (4) the 

duty to settle claims within the policy limits where 

possible.

Infra ¶ 48.

¶15 And, despite concluding that Mr. Oltmanns failed to preserve 

his argument that Fire Insurance breached its duty to defend him in the 

underlying lawsuit arising from the Aquatrax accident, the concurrence
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Amended Opinion of the Court

9

also details the scope and nature of the duty an insurer owes an insured 

to defend against a third-party lawsuit. Infra ¶¶ 49–50.

¶16 We have two problems with the concurrence’s analysis. First, 

we don’t agree that Mr. Oltmanns “waived his argument that Fire 

Insurance breached the implied covenant of good faith by bringing the 

declaratory judgment action” because he somehow “conceded that [Fire 

Insurance’s decision to file that action] was merited in his brief to the 

court of appeals and his brief to this court.” Infra ¶ 24. The court of 

appeals certainly didn’t see it this way. It understood Mr. Oltmanns to 

have argued that Fire Insurance breached its fiduciary duties in seeking 

declaratory judgment because the coverage question—whether an 

Aquatrax was covered by the term “jet ski”—was not “fairly 

debatable.”

¶17 We see this same argument in Mr. Oltmanns’s brief to this 

court. It’s true that there are stray comments in Mr. Oltmanns’s 

supreme court briefing to the effect that Fire Insurance “had the right to 

seek declaratory relief.” But the obvious thrust of Mr. Oltmanns’s

argument is that he is entitled to attorney fees in connection with the 

declaratory judgment action because “[t]here was no good basis for 

[Fire Insurance’s decision to] fil[e] the declaratory judgment action”—

and this because whether the term “jet ski” encompassed an Aquatrax 

was not a “‘fairly debatable’ coverage question.” We therefore consider 

this argument on its own terms. And we conclude that, even accepting 

Mr. Oltmanns’s premises—i.e., even accepting that Mr. Oltmanns 

would be entitled to attorney fees if the coverage question was not 

fairly debatable—Mr. Oltmanns loses.

¶18 We are also concerned by the concurrence’s decision to 

explain, in detail, the differences between first-party and third-party 

insurance claims. On its own terms, the concurrence’s opinion is good 

stuff. It’s, as Judge Chamberlain Haller might put it, “lucid, intelligent, 

[and] well thought-out.”2 And it may very well be entirely correct. But 

this isn’t the case for it. Mr. Oltmanns framed his claim as a first-party 

claim: Fire Insurance is liable because it could not fairly argue—it 

wasn’t “fairly debatable”—that an Aquatrax was a “jet ski.” Fire 

Insurance then responded to this argument on those same terms. As a 

consequence, nobody—not the parties, not the insurance industry, not 

 

2 MY COUSIN VINNY (20th Century Fox 1992) (overruling a “lucid, 

intelligent, and well thought-out objection” given the circumstances).
FIRE INSURANCE EXCHANGE v. OLTMANNS

Amended Opinion of the Court

10

the plaintiffs’ bar—is fairly on notice that this is the case in which we 

intend to announce that an insurer’s decision to seek a declaratory 

judgment in connection with a third-party lawsuit must be analyzed 

under third-party insurance law. Nor, needless to say, has anybody

been put on notice that we’re prepared to announce an overarching 

framework for the analysis and resolution of third-party claims—a 

framework that, on its face, purports to occupy the field, controlling a 

vast array of possible insurance lawsuits. We need adversarial briefing 

before we can fairly do this.

¶19 To be clear, we don’t mean that we’re categorically bound by 

litigants’ decision to litigate a case under the wrong legal principles (if 

wrong legal principles they be). We agree with the concurrence that our 

court will not “be forced to ignore the law just because the parties have 

not raised or pursued obvious arguments.” Infra ¶ 27 (quoting 

Kaiserman Assocs. v. Francis Town, 977 P.2d 462, 464 (Utah 1998)). 

¶20 But there is a pragmatic reason to draw our decision here 

narrowly: the law in this area is unsettled. Courts around the country 

take different approaches to the issues the concurrence resolves. Some 

courts part ways with the concurrence’s repudiation of the “fairly 

debatable” standard in the third-party context, denying bad faith claims 

in this context as long as the coverage question on which the insurer 

sought a declaratory judgment is “fairly debatable.” See, e.g., UniversalRundle Corp. v. Commercial Union Ins. Co., 725 A.2d 76, 89–90 (N.J. Super. 

Ct. App. Div. 1999) (upholding denial of a bad faith claim against 

insurer because the coverage question was “fairly debatable” and 

concluding that “for purposes of evaluating bad faith claims against an 

insurer, it should [not] matter whether the coverage at issue is first- or 

third-party”); Wis. Pharmacal Co. v. Neb. Cultures of Cal., Inc., 876 N.W.2d 

72, 78 (Wis. 2016) (“[An] insurer does not breach its contractual duty to 

defend by denying coverage where the issue of coverage is fairly 

debatable as long as the insurer provides coverage and defense once 

coverage is established.” (alteration in original) (citation omitted)). But 

see Hart Constr. Co. v. Am. Family Mut. Ins. Co., 514 N.W.2d 384, 391 

(N.D. 1994) (applying reasonableness standard to whether an insurer 

breached its duties to an insured in seeking a declaratory judgment in 

connection with a third-party lawsuit). Courts also advance different 

approaches to the duty to defend. See, e.g., Wis. Pharmacal Co., 876 

N.W.2d at 78 (noting that an insurer need not necessarily tender 

defense of a third-party lawsuit during pendency of a declaratory 

judgment action if it requests “a bifurcated trial on the issues of 
Cite as: 2017 UT 81

Amended Opinion of the Court

11

coverage and liability[] [andmoves] to stay any proceedings on liability

until the issue of coverage is resolved” (first and second alterations in 

original) (citation omitted)).

¶21 The concurrence claims that the law in Utah is well-settled on 

all of these issues. Infra ¶ 27 n.3. But we’ve never held that an insurer 

must defend against all third-party liability claims that could 

“conceivably” fall within insurance coverage. Nor have we considered 

whether an insurer may, consistent with its fiduciary obligations, stay 

the underlying proceedings until any dispute over coverage is resolved.

Nor, in our view, have we squarely repudiated any role for the “fairly 

debatable” standard in the third-party insurance context. And because 

there are a variety of possible approaches to the issues the concurrence

explores, we won’t take a stand on any of them until after they have 

been put squarely before us. Here, the parties have litigated this as a 

first-party insurance dispute, and we therefore lack the benefit of 

adversarial briefing on the principles the concurrence elucidates. 

¶22 We certainly agree with the concurrence that we shouldn’t

bind ourselves to a “confuse[d] . . . distinction between first-party 

insurance claims and third-party insurance claims” just because the 

litigants have potentially misapplied this law. Infra ¶ 27. Nor do we 

need to commit ourselves to a third-party insurance framework in a 

case where nobody has asked us to. Instead, we chart a middle ground. 

We affirm the court of appeals on the basis that Mr. Oltmanns’s 

argument isn’t persuasive on its own terms—the coverage question was 

fairly debatable. But we expressly flag, for future litigants, the questions 

(1) whether claims like those before us should be analyzed under thirdparty insurance principles and (2) if so, what those principles are.

CONCLUSION

¶23 For the reasons set forth above, Mr. Oltmanns’s claim that Fire 

Insurance did not fairly evaluate his claim and unreasonably rejected it 

fails. Thus, we affirm the court of appeals’ decision to uphold the 

district court’s grant of summary judgment to Fire Insurance. 

JUSTICE DURHAM, concurring in part and concurring in the result:

¶24 I concur in the portion of the majority opinion that concludes

that Mr. Oltmanns’s claim that Fire Insurance did not fairly evaluate his 

claim and unreasonably rejected it fails. In doing so, I affirm the court 

of appeals’ decision to uphold the summary judgment of the district 
FIRE INSURANCE EXCHANGE v. OLTMANNS

DURHAM, J., concurring in part and in the result

12

court, but do so on alternate grounds. “It is well settled that an 

appellate court may affirm the judgment appealed from if it is 

sustainable on any legal ground or theory apparent on the record.” 

Moss v. Parr Waddoups Brown Gee & Loveless, 2012 UT 42, ¶ 26, 285 P.3d 

1157 (citation omitted). In this case, Mr. Oltmanns waived his argument 

that Fire Insurance breached the implied covenant of good faith by 

bringing the declaratory action when he conceded that it was merited 

in his brief to the court of appeals and his brief to this court. As to the 

question presented to this court regarding the breach of duty in filing a 

declaratory judgment, we hold that Fire Insurance was “entitled to seek 

a declaratory judgment as to its obligations and rights,” Farmers Ins. 

Exch. v. Call, 712 P.2d 231, 237 (Utah 1985) (citation omitted), as 

acknowledged by Mr. Oltmanns.

¶25 I also concur in the majority’s decision to reject Mr. Oltmanns’s 

argument that Fire Insurance breached its duty to defend on 

preservation grounds. Mr. Oltmanns failed to preserve his claim for a 

breach of the duty to defend in his opposition to Fire Insurance’s 

summary judgment motion.

¶26 Unfortunately, parties and the lower courts have conflated the 

common law principles regarding insurer’s duties under insurance 

contracts regarding third-party claims against the insured on the one 

hand, and first-party claims where the insured sues the insurer on the 

other. While both third-party and first-party claims involve coverage 

decisions, the relationship of the insurer to the insured, the implied 

obligations of good faith performance, and the remedies available to 

the insured are different depending on the type of claim. These 

differences are significant. “[T]he relationship betweem the insurer and 

its insured [in a first-party context] is fundamentally different than in a 

third-party context.” Beck v. Farmers Ins. Exch., 701 P.2d 795, 799 (Utah 

1985) (“This distinction is of no small consequence.”). As it relates to 

this case, the holding does not rest on this distinction because Mr. 

Oltmanns waived the claim he is bringing before us, so his argument 

fails regardless of the context in which he brought it. The judgments in 

the courts below, however may have the effect of confusing our 

jurisprudence in this area. Therefore, we take this opportunity to clarify 

well settled principles of law regarding first-party insurance claims and 

third-party insurance claims as part of our responsibility “[a]s the 

state’s highest court . . . to maintain a sound and uniform body of 

precedent.” Patterson v. Patterson, 2011 UT 68, ¶ 20, 266 P.3d 828.
Cite as: 2017 UT 81

DURHAM, J., concurring in part and in the result

13

¶27 These principles are clearly laid out in our precedent. To ignore 

the incorrect approach the parties have taken in this case could set 

incorrect precedent for future cases and further confuse the distinction 

between first-party insurance claims and third-party insurance claims. 

“[S]ettled appellate precedent is of crucial importance in establishing a 

clear, uniform body of law.” In re United Effort Plan Tr., 2013 UT 5, ¶ 18, 

296 P.3d 742 (citation omitted). “As the state’s highest court, we have a 

responsibility to maintain a sound and uniform body of precedent and 

must apply the [correct] law.”1 Patterson, 2011 UT 68, ¶ 20. Although we 

are not actually applying the principles of law governing first-party and 

third-party insurance claims to the holding of this case, we reiterate the 

need to clarify the law because of the arguments and judgments made 

in the briefs and the courts below. The parties’ “failure to address the 

legal question from the right perspective does not render us powerless 

to work the problem out properly. A court of appeals may and often 

should do so unbidden rather than apply an incorrect rule of law to the 

parties’ circumstances.”2 Williams-Guice v. Bd. of Educ., 45 F.3d 161, 164 

 

1 The majority would have us apply the principles of law for 

first-party claims because “the parties have litigated this as a first-party 

insurance dispute.” Infra ¶ 21. We think this unwise and believe that 

where the inappropriate law has been argued or applied, the appellate 

courts have a duty to ensure that the correct law is applied: “[a]s a court 

of last resort, [the supreme court] ha[s] the authority to decide on 

whatever grounds we deem appropriate, regardless of preservation or 

presentation.” State v. Johnson, 2017 UT 70, ¶ 43, ___ P.3d ___ (alterations 

in original) (citation omitted). Typically, however, appellate courts 

under these circumstances would ask for supplemental briefing or a 

remand to the court below. See id. ¶ 45. Because our holding does not 

rest on the distinction in the law in this case, I do not see the need to do 

so.

2 I note that Oltmanns’ claim fails regardless of whether first-party 

claim law or third-party claim law applies because he waived his 

argument as to Fire Insurance’s breach of duty in filing a declaratory 

judgment. I agree with the majority that “Mr. Oltmanns’s argument 

fails on its own terms.” Supra ¶ 10. However, the reasoning for my 

holding is that “Fire Insurance was ‘entitled to seek a declaratory 

judgment as to its obligations and rights,’” supra ¶ 24, and that 

Oltmanns acknowledges this right in his brief, thus waiving any claims 

for attorney fees for that declaratory judgment. 
FIRE INSURANCE EXCHANGE v. OLTMANNS

DURHAM, J., concurring in part and in the result

14

(7th Cir. 1995). “[W]e decline to ignore controlling law because counsel 

failed to argue it below.” Patterson, 2011 UT 68, ¶ 21, see also id. ¶¶ 18, 

20, (“[W]e are unwilling to disregard controlling authority that bears 

upon the ultimate resolution of a case solely because the parties did not 

raise it below. . . . And the failure to raise the controlling [precedent] in 

the district court is a failure that can be appropriately assigned to 

counsel for both parties.”)3; Kaiserman Assocs. v. Francis Town, 977 P.2d

462, 464 (“In our view, an overlooked or abandoned argument should 

not compel an erroneous result. We should not be forced to ignore the 

law just because the parties have not raised or pursued obvious 

arguments.”); Adkins v. Uncle Bart’s Inc., 2000 UT 14, ¶ 40, 1 P.3d 528 

(same). 

¶28 Here, the parties are incorrectly using arguments derived from 

common-law first-party insurance claims when they should be using 

the common-law principles of third-party claims. Whether a question of 

coverage is “fairly debatable” has become a term of art that has only 

been decided in Utah in the context of first-party claims. Therefore, it is 

not applicable to this case. Because Mr. Oltmanns’s claim falls under 

 

3 I disagree with the majority that because both parties have framed 

their claim as a first-party claim we must apply first-party insurance 

claim law to the case. Ultimately, I do not apply either. However, as a 

court, we are not bound to accept arguments regarding incorrect law. 

This is clearly a third-party insurance claim, and we have clearly 

defined precedent regarding third-party claims. Nor do I agree with the 

majority’s claims that the common law in third-party insurance claims 

is unsettled in Utah. Supra ¶ 20. We do not “need adversarial briefing 

before” we can reiterate what has been litigated by other parties who 

have had the opportunity to litigate their claims in our adversarial 

system and been decided by this court. Supra ¶ 18. The precedent is 

clear and has been extensively litigated by those who have had the 

opportunity to present adversarial briefing. Nor is it pertinent that the 

law in this area is unsettled in other jurisdictions. Supra ¶ 20. It is well 

settled in Utah and neither party has asked us to reconsider our 

precedent. In fact, one of the primary cases on insurance law also 

reached the United States Supreme Court, who only reversed on the 

amount of punitive damages awarded. See Campbell v. State Farm Mut. 

Auto Ins. Co., 2001 UT 89, 65 P.3d 1134, reh’g denied (2001); cert. granted 

65 P.3d 1134; rev’d & remanded on other grounds, 538 U.S. 408 (2003). 
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DURHAM, J., concurring in part and in the result

15

third-party liability law, the relevant questions are whether the insurer 

initiated the declaratory judgment action to have the court determine a 

”question of construction or validity” as defined by Utah Code 

section 78B-6-408 and whether the insurer’s inquiry was “reasonable 

under the circumstances,” pursuant to Utah Rule of Civil Procedure 

11(b).4

¶29 We take this opportunity now, to restate our precedent 

concerning first-party claims and third-party claims to fulfill our 

responsibility “[a]s the state’s highest court . . . to maintain a sound and 

uniform body of precedent.” Patterson, 2011 UT 68, ¶ 20. While 

insurance policies are contracts at their core, they are treated differently 

than most contracts under the common law to protect the reasonable 

expectations of the insured and the insurer. See generally Mark A. 

Geistfeld, Interpreting the Rules of Insurance Contract Interpretation, 68 

RUTGERS U. L. REV. 371 (2015). This is true for both liability insurance 

claims where a third party makes a claim against the insured’s policy 

and first-party claims where an insured seeks reparation from its own 

insurer.

I. INSURANCE LAW IS CONTRACT LAW THAT

CONTAINS ADDED PROTECTIONS 

FOR THE INSURED

¶30 Basic contract law is based on the assumption that courts act to 

“adjust a commercial relationship between parties with roughly equal

bargaining power.” Mark A. Geistfeld, Interpreting the Rules of Insurance 

Contract Interpretation, 68 RUTGERS U. L. REV. 371, 382 (2015) (quoting

ROBERT H. JERRY, II & DOUGLAS R. RICHMOND, UNDERSTANDING 

INSURANCE LAW § 25D(b) (5th ed. 2012)). However, in the context of 

insurance contracts, the insured is presumed to be “an ordinary, 

unsophisticated consumer, possessing an understanding of only the 

most rudimentary aspects of the coverage.” Id. Thus, courts have 

“interpret[ed] standard-form insurance policies to protect the ordinary 

policyholder’s reasonable expectations of coverage.” Id. at 373. 

Additionally, insurers need to be able to rely on reasonable 

interpretations to avoid the “risk of legal error that can significantly 

disrupt the insurer’s actuarial calculations,” thus keeping insurance 

available and affordable. Id. at 374. Insurance law incorporates all the 

 

4 This rule was amended in May 2016, but the relevant provision 

here was unchanged.
FIRE INSURANCE EXCHANGE v. OLTMANNS

DURHAM, J., concurring in part and in the result

16

basic principles of contract law, including the implied duty of good 

faith and fair dealing. But, because of the nature of insurance contracts, 

and the importance of the public policy considerations, insurers are

held to a higher standard than ordinary merchants.

A. Public Policy Implications

¶31 The practice of treating questions of interpretation of insurance 

contracts differently and of providing for broader remedies under 

certain conditions than contracts in general comes as a result of several 

public policy implications inherent in insurance contracts. Insurance 

policies are adhesion contracts. Insurance companies typically use 

standardized forms, and there is no room for negotiation or approval of 

specific provisions or exceptions. See Douglas R. Richmond, Trust Me: 

Insurers Are Not Fiduciaries to Their Insureds, 88 KY. L.J. 1, 4 (2000); see 

also Geisfeld, supra ¶ 29, at 382; MARGARET N. KNIFFIN, 5 CORBIN ON 

CONTRACTS § 24.27 (Joseph M. Perillo ed., rev. ed., 1998) (“Disparity of 

bargaining power is likely to exist when a person applies for an 

insurance policy. The applicant usually has little or nothing to do with 

the authorship of the policy provisions. The applicant may not even 

read the policy, being discouraged by the number of terms and the 

fineness of print. An insurance company normally issues thousands of 

such policies, using printed forms prepared and approved by its 

actuaries, officers, and attorneys.” (footnote omitted)).

¶32 And, purchasing insurance is not always “voluntary.” 

Insurance coverage is often a requirement of obtaining a mortgage and 

is mandatory for drivers in Utah. See UTAH CODE § 31A-22-302 

(requiring owners or operators to carry both no-fault and liability auto 

insurance). Also, rather than being strictly a commercial relationship, 

most “insureds purchase their policies for peace of mind and security 

rather than for financial gain.” Richmond, supra ¶ 31 at 4 (footnote 

omitted). 

¶33 Because of these policy considerations, “this Court has 

expressed its commitment to the principle that ‘insurance policies 

should be construed liberally in favor of the insured and their 

beneficiaries so as to promote and not defeat the purposes of 

insurance.’” U.S. Fid. & Guar. Co. v. Sandt, 854 P.2d 519, 521 (Utah 1993)

(citation omitted). This includes construing “ambiguous or uncertain 

language in an insurance contract that is fairly susceptible to different 
Cite as: 2017 UT 81

DURHAM, J., concurring in part and in the result

17

interpretations . . . in favor of coverage,”5 id. at 522, and “in light of how 

the average, reasonable purchaser of insurance would understand the 

language of the policy as a whole,” id. at 523.

B. The Duty of Good Faith and Fair Dealing

¶34 Insurers have, at minimum, the same implied “duty of good 

faith and fair dealing implied in all contracts and . . . a violation of that 

duty gives rise to a claim for breach of contract.” Beck v. Farmers Ins. 

Exch., 701 P.2d 795, 798 (Utah 1985). “Every contract or duty . . .

imposes an obligation of good faith in its performance and 

enforcement.” U.C.C. § 1-304 (AM. LAW INST. & UNIF. LAW COMM’N

2016). See also RESTATEMENT (SECOND) OF CONTRACTS § 205 (AM. LAW 

INST. 2017) (“Every contract imposes upon each party a duty of good 

faith and fair dealing in its performance and its enforcement.”); Aditi 

Bagchi, Note, Unions and the Duty of Good Faith in Employment Contracts, 

112 YALE L.J. 1881, 1882 (2003) (“The duty of good faith is a background 

condition imposed on all contracts that limits the negative effects of 

unequal bargaining power . . . .”). “’Good faith’ . . . means honesty in 

fact and the observance of reasonable commercial standards of fair 

dealing.” U.C.C. § 1-201(b)(20) (AM. LAW INST. & UNIF. LAW COMM’N

2016).

¶35 In insurance contracts, the good faith performance of an 

insurer is evaluated by an objective standard that is measured by what 

a reasonable insured would expect from an insurer. See Sandt, 854 P. 2d 

at 523. “Good faith . . . emphasizes faithfulness to an agreed common 

purpose and consistency with the justified expectations of the other 

party; it excludes a variety of types of conduct characterized as 

 

5But see Truck Ins. Exch. v. Rutherford, 2017 UT 25, ¶ 14, 395 P.3d 143

(finding that where language is unambiguous in insurance code there is 

“no need for a tie-breaker, and thus no relevance for the principle of 

liberal construction of the Act” (emphases added) (citation omitted)). In 

Rutherford, we noted that our common law interpretation that the “tie 

goes to the insured” in ambiguous statutes was abrogated by Utah 

Code sections 31A-1-102 and -201(1). Id. ¶ 15. While Rutherford required 

us to interpret the coverage mandated by statute, this case requires us 

to interpret the coverage mandated in a contract. Our interpretation of 

insurance contracts is still governed by the common law requirement 

that we construe insurance contracts “in favor of coverage” when the 

terms are ambiguous.
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DURHAM, J., concurring in part and in the result

18

involving ‘bad faith’ because they violate community standards of 

decency, fairness or reasonableness.” RESTATEMENT (SECOND) OF 

CONTRACTS § 205 cmt. a (AM. LAW INST. 2017). In the insurance context, 

this court has held “that the implied obligation of good faith 

performance contemplates, at the very least, that the insurer will 

diligently investigate the facts to enable it to determine whether a claim 

is valid, will fairly evaluate the claim, and will thereafter act promptly 

and reasonably in rejecting or settling the claim.” Beck, 701 P.2d at 801 

(applying this duty in the first-party context); see also Black v. Allstate

Ins. Co., 2004 UT 66, ¶¶ 19–20, 100 P.3d 1163 (applying the same 

standard in the third-party context), reh’g denied (2004).

¶36 Insurers are also required to “’deal with laymen as laymen and 

not as experts in the subtleties of law and underwriting’ and to refrain 

from actions that will injure the insured’s ability to obtain the benefits 

of the contract.” Beck, 701 P.2d at 801 (citation omitted). Insurers owe a 

responsibility to their insureds because of their position of authority 

and control over the underwriting process. See Allen v. Metro. Life Ins. 

Co., 208 A.2d 638, 644 (N.J. 1965) (“While insurance policies and binders 

are contractual in nature, they are not ordinary contracts but are 

‘contracts of adhesion’ between parties not equally situated. The 

company is expert in its field and its varied and complex instruments 

are prepared by it unilaterally whereas the assured or prospective 

assured is a layman unversed in insurance provisions and practices. He 

justifiably places heavy reliance on the knowledge and good faith of the 

company and its representatives and they, in turn, are under 

correspondingly heavy responsibility to him.”(citations omitted)).

II. IMPLIED AND CONTRACTUAL DUTIES AND

OBLIGATIONS UNDER THIRD-PARTY CLAIMS 

AND FIRST-PARTY CLAIMS

¶37 While all insurers have a duty of good faith and fair dealing 

with their insureds, there is a difference in the relationship between the 

insurer and the insured, the insurer’s implied obligations of good faith 

performance, and the remedies available to the insured depending on 

whether the claim is a third-party liability claim or a first-party claim. 

This difference gives rise to an heightened duty in the case of 

third-party claims. 
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DURHAM, J., concurring in part and in the result

19

A. Relationships Between Parties

¶38 Third-party cases involve liability, not just coverage. In these 

cases, a person who is not a party to the insurance contract sues the 

insured for the losses that are covered by the insurance contract. 

Insureds seek coverage under their insurance contract for their 

responsibility for the losses of the third party up to the coverage limit in 

the policy, tendering the defense of the claim to the insurer. The 

insurer’s duty lies in defending and indemnifying the insured in good 

faith. An insurer is not in privity of contract with the third party who 

has made a claim against the company’s insured, so the contractual 

duty to deal fairly and in good faith does not extend to an injured 

third-party. See Pixton v. State Farm Mut. Auto Ins. Co., 809 P.2d 746 

(Utah Ct. App. 1991). An insurer’s duties in these claims are owed to 

the insured, not the third party. See Black v. Allstate Ins. Co., 2004 UT 66, 

¶ 20, 100 P.3d 1163 (“When an insurer processes a claim . . . from a 

third party requesting coverage under the insured’s liability policy, the 

insurer must act in good faith with respect to its own insured.”), reh’g 

denied (2004). In third-party claims, the insureds look to the insurers to 

defend and indemnify them. In essence, the insurer and the insured are

on the same side and the third party is the adversary.

¶39 In first-party cases, insureds suffer a loss and then make claims 

for reparations from their insurers, arguing that the loss is covered by 

the policy. For example, if a hailstorm damages an insured’s roof, she 

would make a claim under her homeowner’s policy for repairs. In these 

cases, the relationship between the insured and the insurer is more 

adversarial. They have conflicting interests. The insured wants to get 

the most compensation possible, and the insurer wants to cover as little 

as permissible under the contract. “In the [first-party] situation, the 

insured and the insurer are, in effect and practically speaking, 

adversaries.” Beck v. Farmers Ins. Exch., 701 P.2d 795, 799 (Utah 1985) 

(alteration in original) (citation omitted).

B. Standard of Care and Implied and Contractual Obligations

¶40 The differences in the relationships between the insured and 

the insurer in these two types of claims affect the implied obligations of 

good faith performance. In third-party claims, the insured has a 

heightened duty that incorporates not only all of the typical contractual 

obligations of good faith and fair dealing that exist in every insurance 

contract, but also a duty as a fiduciary to their insureds. First-party 

claims, on the other hand do not give rise to this heightened duty.
FIRE INSURANCE EXCHANGE v. OLTMANNS

DURHAM, J., concurring in part and in the result

20

1. Third-Party Heightened Duty

¶41 In third-party cases, there is not only the implied duty of good 

faith performance that inheres in any insurance contractual 

relationship, but there is an extended duty because “the insurer acts as 

an agent for the insured with respect to the disputed claim.” Beck, 701 

P.2d at 799. 

¶42 This heightened duty has been characterized as fiduciary in 

nature in our prior case law. See, e.g., Black, 2004 UT 66, ¶ 27 (“[U]pon 

the initiation of formal legal proceedings . . . the insurer undertake[s] a 

fiduciary duty to defend its insured by appointing counsel and 

thereafter zealously protecting the interests of its insured in defending 

or negotiating settlement of the action.” (emphasis added)); Campbell v. 

State Farm Mut. Auto Ins. Co., 2001 UT 89, ¶ 121, 65 P.3d 1134 (“The 

duties of good faith arising in a third-party context include fiduciary

duties and are higher duties than the duties arising under the contract 

theory in a first-party context.” (emphasis added)), reh’g denied, (2001); 

cert. granted, 65 P.3d 1134; rev’d & remanded on other grounds, 538 U.S.

408 (2003); Campbell v. State Farm Mut. Auto Ins. Co., 840 P.2d 130, 140

(Utah Ct. App. 1992) (noting that “the implied duty of good faith and 

fair dealing [in a third-party insurance case] . . . . imposes a fiduciary

duty upon the insurer because of the trust and reliance placed in the 

insurer by its insured” (emphasis added)); Beck, 701 P.2d at 799 (“In 

essence, the contract itself creates a fiduciary relationship because of the 

trust and reliance placed in the insurer by its insured.” (emphasis 

added)); Ammerman v. Farmers Ins. Exch., 430 P.2d 576, 578 (Utah 1967) 

(“The covenant in the policy requiring the insurer to defend the insured 

imposes upon it a fiduciary responsibility.” (emphasis added)). 

¶43 Fiduciary duties are “established, whether by express contract 

or by conduct and circumstances of the parties, which imply a fiduciary 

bond and a duty on the party in whom confidence is placed to exercise 

good faith toward the party reposing that confidence while entering 

into transactions during the continuance of the relationship.” First Sec. 

Bank of Utah N.A. v. Banberry Dev. Corp., 786 P.2d 1326, 1330 (Utah 

1990). 

[T]here are generally two types of fiduciary 

relationships: “(1) [T]hose specifically created by contract 

such as principal and agent, attorney and client, and 

trustee and cestui que trust, for example, and those created 

by formal legal proceedings such as guardian and/or 
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DURHAM, J., concurring in part and in the result

21

conservator and ward, and executor or administrator of 

an estate, among others, and (2) [T]hose implied in law 

due to the factual situation surrounding the involved 

transactions and the relationship of the parties to each

other and to the questioned transactions.”

Id. at 1332 (second and third alterations in original) (citation omitted). 

Most fiduciary relationships require that the fiduciary “give priority to 

his beneficiary’s best interests whenever he acts on the beneficiary’s 

behalf.” Richmond, supra ¶ 31, at 1 (citation omitted); see also Banberry 

Dev. Corp., 786 P.2d at 1333 (“A fiduciary relationship imparts a 

position of peculiar confidence placed by one individual in another. A 

fiduciary is a person with a duty to act primarily for the benefit of 

another.” (citation omitted)). It is a duty that requires “undivided 

loyalty” to the beneficiary. Richmond, supra ¶ 31, at 1 (citation omitted). 

¶44 Fiduciary duties “arise whenever a continuous trust is reposed 

by one party in the skill and integrity of another.” Banberry Dev. Corp., 

786 P.2d at 1333. “Generally in a fiduciary relationship, the property, 

interest or authority of the other is placed in the charge of the 

fiduciary.” Id. (citation omitted). Fiduciary duties can be established by 

statute6 or by common law.7

¶45 There are, however, some differences between typical fiduciary 

relationships and the relationship between the insurer and the insured 

in third-party cases. “In the [third-party] situation, the insurer must act 

in good faith and be as zealous in protecting the interests of the insured 

as it would be in regard to its own.” Beck, 701 P.2d at 799 (alteration in 

original) (citation omitted). This is a lower standard than that required 

of a typical fiduciary relationship where the fiduciary must place the 

interests of the beneficiary above its own. This court described the 

 

6 See, e.g., UTAH CODE § 16-10a-840 (explaining the fiduciary duties 

owed by directors to a corporation); UTAH CODE § 48-3a-409 (explaining 

the fiduciary duties owed by members in a member-managed limited 

liability company); UTAH CODE §§ 22-1-1 to -2, 75-7-801 to -804 

(explaining the fiduciary duties owed by the trustee of a trust). 

7 See, e.g., Daniels v. Gamma W. Brachytherapy, LLC, 2009 UT 66, 221 

P.3d 256; Christensen & Hensen, P.C. v. Barrett & Daines, 2008 UT 64, 194 

P.3d 931; Sorensen v. Barbuto, 2008 UT 8, 177 P.3d 614; Banberry Dev. 

Corp., 786 P.2d.
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DURHAM, J., concurring in part and in the result

22

nature of the duty of the insurance company as fiduciary in Ammerman,

adopting a lower fiduciary obligation than that of a typical fiduciary. 

430 P.2d at 579 (describing the obligation as one that “should be looked 

at realistically, and . . . dictated by reason and prudence under the 

circumstances . . . [with] an awareness . . . that the nature of the risks 

and the extent of liability under an insurance policy are based on 

premiums . . . correlated to the legitimate costs of the insurance”). 

¶46 Some scholars have argued that third-party insurer/insured 

relationship should not be lumped together with other fiduciary 

relationships. “If insurers were made to be true fiduciaries, they would 

lose their ability to hold down premiums by weeding out illegitimate 

claims, contesting an insured’s liability, or disputing a third-party 

claimant’s damages.” Richmond, supra ¶ 31 at 24. Were this the case, 

“[t]he cure might then be worse than the illness because insurers would 

then surely have to fund their new duty through significantly increased 

premiums.” Id. We acknowledged this concern in Ammerman. 430 P.2d 

at 578–79 (“It is true that the company cannot properly gamble with or 

sacrifice the insured’s interest simply to protect itself. By the same 

token it is neither practical nor reasonable to expect it to subvert its 

own interests entirely to protect the insured by requiring it to accept 

any offer below the policy limits, regardless of circumstances, and 

however questionable the issues of liability and damage may be.”).

However, “the existence of a fiduciary relationship . . . is manifest in . . .

[the] confidence of the [insured] in the [insurer]” because “there . . .

exist[s] a certain inequality, dependence, . . . business intelligence, 

knowledge of the facts involved, or other conditions, giving to [the 

insurer] advantage over the [insured].” Banberry Dev. Corp., 786 P.2d at 

1333 (citation omitted). A fiduciary relationship is established by the 

insurance contract when the insurer contracts to defend the insured for 

third-party liability claims. See Grantsville v. Redevelopment Agency of 

Tooele City, 2010 UT 38, ¶ 42, 233 P.3d 461 (“A fiduciary relationship 

‘results from the manifestation of consent by one person to another that 

the other shall act on his behalf and subject to his control, and consent 

by the other so to act.’” (quoting Wardley Corp. v. Welsh, 962 P.2d 86, 

89 (Utah Ct. App. 1998) quoting RESTATEMENT (SECOND) OF AGENCY § 

1(1) (AM. LAW INST. 1958)).

¶47 Because of the insurer’s special role “[i]n the third party 

context, . . . an insured may state a cause of action in tort for an 

insurer’s breach of its obligations.” Campbell, 840 P.2d at 138. 

“Accordingly, Utah law allows an insured to sue an insurer in tort to 
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DURHAM, J., concurring in part and in the result

23

remedy a violation of that duty.” Id. Thus a breach of the heightened 

duty of an insurer acting as a fiduciary in third-party cases “renders the 

insurer answerable in tort to remedy a breach of that duty.” Id. at 140. 

This exposes the insurer to the possibility of “consequential and 

punitive damages awards in excess of policy limits” if they fail to act 

reasonably in their duties as fiduciary in third-party claims. Black, 2004 

UT 66, ¶ 25 (citation omitted).

¶48 Insurers owe their insureds four duties in third-party claims: 

(1) the duty to defend an action brought against their insureds that could 

conceivably fall within the scope of the policy coverage (as defined by 

the insurance contract), (2) the duty to be fair and reasonable in 

diligently investigating the validity of claims, (3) the duty to indemnify 

their insureds for valid claims, and (4) the duty to settle claims within 

the policy limits where possible. See Black, 2004 UT 66, ¶¶ 20–21 (“When 

an insurer processes a claim, whether it be from its own insured or from 

a third party requesting coverage under the insured’s liability policy, the 

insurer must act in good faith with respect to its own insured. In 

previous cases before this court, we have addressed the good faith duty 

owed by an insurer to its insured when negotiating settlement of and 

defending claims brought by third parties. In addition to these duties, 

we hold today that claims submitted by third parties must be diligently 

investigated to determine their validity and then reasonably evaluated in 

light of all the facts. This is a duty the insurer owes to its insured by 

virtue of the insurance policy. Hence, . . . [the insurer] at least had an 

obligation to [the insured] to diligently investigate the facts, and then act 

fairly and reasonably in evaluating and settling the claim. We note that 

this duty to investigate and reasonably evaluate a third-party claim does

not require that the insurer’s evaluation ultimately prove to be correct. 

For example, the fact that a different outcome is reached at a subsequent 

trial is not dispositive of whether the insurer breached its duty. Rather, 

whether an insurer discharges its duty in these instances hinges upon 

whether the investigation and subsequent resolution of the claim is fair 

and reasonable.” (citing Sperry v. Sperry, 1999 UT 101, ¶ 11, 990 P.2d 

381; Beck, 701 P.2d at 799–800; Ammerman, 430 at 578–79)); see also

Richmond, supra ¶ 31 at 7. If an insurer breaches one of these duties 

when its insured is being sued by a third party, the insured has a cause 

of action in contract law for breach of the implied covenant of good faith 

and in tort law for failure to act as fiduciaries for the insured.
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DURHAM, J., concurring in part and in the result

24

a. The contractual duties to defend and indemnify in third-party 

claims

¶49 The duties to defend and indemnify the insured are defined by 

contract. The insurer has a duty to defend as defined in contract, and 

that duty may well exceed the duty to indemnify. This duty arises 

when the insurer has obligated itself to defend the insured in the 

insurance contract and there is a sufficient factual basis for potential 

liability of a covered incident. “The duty to defend is broader than the 

duty to indemnify, but the insurer’s obligation is not unlimited; the 

duty to defend is measured by the nature and kinds of risks covered by 

the policy and arises whenever the insurer ascertains facts which give 

rise to the potential of liability under the policy.” Deseret Fed. Sav. & 

Loan Ass’n v. U.S. Fid. & Guar. Co., 714 P.2d 1143, 1146 (Utah 1986) 

(citation omitted). Nevertheless, “an insurer may have a duty to defend 

an insured even if . . . the insurer is ultimately not liable to indemnify 

the insured.” Fire Ins. Exch. v. Therkelsen, 2001 UT 48, ¶ 22, 27 P.3d 555.

¶50 Even where insurers have contracted to defend their insureds 

in liability cases, they are not required to defend all cases regardless of 

how frivolous they are or how unlikely it is that the loss is covered by 

the policy. “Where there is no potential liability, there is no duty to 

defend.” Deseret Fed. Sav. & Loan Ass’n, 714 P.2d at 1147 (citations 

omitted). “When faced with a decision as to whether to defend or 

refuse to defend, an insurer is entitled to seek a declaratory judgment 

as to its obligations and rights.” Farmers Ins. Exch. v. Call, 712 P.2d 231, 

237 (Utah 1985). However, an insurer has a duty to defend against a 

potentially viable third-party liability claim “unless relief is obtained by 

way of a declaratory judgment.” State Farm Mut. Auto Ins. Co. v. Kay, 

487 P.2d 852, 855 (Utah 1971), overruled on other grounds by Call, 712 P.2d 

231. Thus, when there is a non-frivolous claim and there is a question as 

to whether the insurer will have to pay the claim, the insurer should 

defend the insured until it obtains a declaratory judgment holding that 

there is no coverage for the loss under the policy. At that point in time, 

the duty to defend ends.

b. The heightened duty to act as fiduciaries in third-party claims

¶51 Because insurers act as insureds’ agents in the disposition of 

third-party claims, they have an implied heightened duty as fiduciaries 

to diligently investigate the validity of claims and to settle claims 

within the policy limits where possible. This duty extends beyond the 
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DURHAM, J., concurring in part and in the result

25

duty of good faith and fair dealing that exists in first-party claims. This 

duty arises because 

[a]n insurer’s failure to act in good faith exposes its 

insured to a judgment and personal liability in excess of 

the policy limits. . . . The insured is wholly dependent 

upon the insurer to see that, in dealing with claims by 

third parties, the insured’s best interests are protected. In 

addition, when dealing with third parties, the insurer acts 

as an agent for the insured with respect to the disputed 

claim. 

Beck, 701 P.2d at 799. 

¶52 “With such a dependent relationship must come a standard of 

care that exists independent of the insurance policy and without 

specific reference to the policy terms.” Richmond, supra ¶ 31 at 7 

(footnote omitted); see also Campbell 840 P.2d at 138 (“This higher duty 

is imposed on the insurer because in a third-party situation, the insurer 

‘controls the disposition of claims against its insured, who relinquishes 

any right to negotiate on his own behalf.’” (citation omitted)). This 

heightened duty to act as fiduciaries also exposes insurers to tort 

liability for breach of these duties. 

¶53 This court has held that “claims submitted by third parties 

must be diligently investigated to determine their validity and then 

reasonably evaluated in light of all the facts.” Black, 2004 UT 66, ¶ 20.

The fulfillment of this duty is not dependent on the ultimate outcome 

of the claim. “Rather, whether an insurer discharges its duty in these 

instances hinges upon whether the investigation and subsequent 

resolution of the claim is fair and reasonable.” Id. ¶ 21. If an insurer 

chooses not to defend an insured in a third-party claim, it must do so 

only after it has 

ma[d]e a good faith determination based on all the facts 

known to it, or which by reasonable efforts could be 

discovered by it, that there is no potential liability under the 

policy. This means that there are no disputed facts which if 

proved by the plaintiff at trial would result in liability 

under the policy. However, this does not mean that the 

insurer can simply say, “We don’t believe that the 

plaintiff can prove what he is alleging.” The insurance 

contract includes the duty to defend [when] . . . . the 

allegations, if proved, could result in liability under the policy.
FIRE INSURANCE EXCHANGE v. OLTMANNS

DURHAM, J., concurring in part and in the result

26

Deseret Fed. Sav. & Loan Ass’n, 714 P.2d at 1147 (emphasis added) 

(citations omitted). This duty to diligently investigate claims and to 

reasonably evaluate them in light of the facts available to determine 

their validity is not defined by contract and inheres in all third-party 

claims. Even if an insurer eventually pays for a claim and the associated 

costs of that claim, this “eventual payment . . . does not necessarily 

vitiate the insured’s cause of action [in tort] for breach of the duty” to 

defend. Campbell, 840 P.2d at 139.

¶54 If an insurer does not defend an action, and a court finds “facts 

which give rise to the potential of liability under the policy,” Deseret 

Fed. Sav. & Loan Ass’n, 714 P.2d at 1146 (citation omitted), the insurer 

faces significant claims for damages. An insured may bring a contract 

claim for breach of the contract term promising to defend against thirdparty claims. See Beck, 701 P.2d at 801 (“[A]s parties to a contract, the 

insured and the insurer have parallel obligations to perform the 

contract in good faith, obligations that inhere in every contractual 

relationship.”). An insured may also bring tort claims for breach of the 

insurer’s heightened duty in third-party claims. See id. at 799 

(“[B]ecause a third-party insurance contract obligates the insurer to 

defend the insured, the insurer incurs a fiduciary duty to its insured to 

protect the insured's interests as zealously as it would its own; 

consequently, a tort cause of action is recognized to remedy a violation 

of that duty.” (citation omitted)). Additionally, the insurer may be 

liable for the entire judgment entered against its insured or any 

settlement that the insured and the third-party reach even if it exceeds 

the policy limits. See Douglas R. Richmond, An Overview of Insurance 

Bad Faith Law and Litigation, 25 SETON HALL L. REV. 74, 79 & n.30 (1994) 

(“Under the judgment rule, the mere entry of an excess judgment 

against the insured is sufficient to hold the offending insurer wholly 

liable. The reasoning is basic: judgment proof insureds are injured by 

excess judgments because their credit is potentially impaired, title to 

their exempt estates may be clouded, their ability to borrow may be 

eroded, and they may be forced into bankruptcy.”).

¶55 In light of this precedent, we leave insurers few options when 

handling a third-party claim. Insurers must (1) be certain that an 

occurrence is not covered, see Deseret Fed. Sav. & Loan Ass’n, 714 P.2d at 

1147 (“The insurer must make a good faith determination based on all 

the facts known to it, or which by reasonable efforts could be 

discovered by it, that there is no potential liability under the policy.

This means that there are no disputed facts which if proved by the 
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DURHAM, J., concurring in part and in the result

27

plaintiff at trial would result in liability under the policy.” (citations

omitted)); (2) seek a declaratory judgment regarding coverage, see Call, 

712 P.2d at 237 (“When faced with a decision as to whether to defend or 

refuse to defend, an insurer is entitled to seek a declaratory judgment 

as to its obligations and rights.”); or (3) pay or settle the claim with the 

third party. Because of the risks to an insurer of not obtaining a 

declaratory judgment when there is a belief that the insurer will 

possibly prevail in a coverage dispute, even if that chance is remote, it 

is usually reasonable for an insurance company to request the district 

court to “issue [a] declaratory judgment[] determining rights, status, 

and other legal relations within its respective jurisdiction,” UTAH CODE

§ 78B-6-401(1), if the insurer determines that the occurrence is not likely 

covered under the policy.

c. The insurer’s rights under third-party claims

¶56 Under Utah Code section 78B-6-401, (the declaratory judgment 

statute) “[e]ach district court has the power to issue declaratory 

judgments determining rights, status, and other legal relations within 

its respective jurisdiction . . . . The declaration . . . shall have the force 

and effect of a final judgment or decree.” In Baird v. State,8 we held that 

the phrase “’rights, status and other legal relations’ in the declaratory 

judgment statute relates to a justiciable controversy where there is an 

actual conflict between interested parties asserting adverse claims on an 

accrued set of facts.” 574 P.2d 713, 715 (Utah 1978). See also Miller v. 

Weaver, 2003 UT 12, ¶ 15, 66 P.3d 592 (“Stated another way, ‘[a] 

justiciable controversy authorizing entry of a declaratory judgment is 

 

8 The operative statute in Baird, Utah Code section 78-33-2, was 

renumbered and amended in 2008 and was the predecessor to Utah 

Code section 78B-6-401. It read

Any person interested under a deed, will or written 

contract, or whose rights, status or other legal relations 

are affected by a statute, municipal ordinance, contract 

or franchise, may have determined any question of 

construction or validity arising under the instrument, 

statute, ordinance, contract or franchise and obtain a 

declaration of rights, status or other legal relations 

thereunder.

Although some material changes were made in the 2008 statute, what 

constitutes a “justiciable controversy” remains the same. 
FIRE INSURANCE EXCHANGE v. OLTMANNS

DURHAM, J., concurring in part and in the result

28

one wherein the plaintiff is possessed of a protectible interest at law or 

in equity and the right to a judgment, and the judgment, when 

pronounced, must be such as would give specific relief.’” (alteration in 

original) (citation omitted)). Declaratory judgments are “designed to 

resolve . . . controversies in order to curtail further problems.” Pintar v. 

Houck, 2011 UT App 304, ¶ 25, 263 P.3d 1158. 

¶57 In addition to our case law about the rights of a party to bring 

a declaratory judgment action under Utah Code section 78B-6-401, we 

have specifically recognized this right under third-party liability case 

law. The standard is whether the insurer initiated the declaratory 

judgment action to have the court determine a “justiciable 

controversy.” See W. Cas. & Sur. Co. v. Marchant, 615 P.2d 423, 427 (Utah 

1980) (holding that “[i]t would not comport with our ideas of either law 

or justice to prevent any party who entertains bona fide questions 

about his legal obligations from seeking adjudication thereon in the 

courts,” and “where the plaintiff merely stated its position and initiated 

[an] action for [a] determination of what appears to be a justiciable 

controversy” (citing UTAH CONST. art. 1, § 11)). In the third-party 

insurance claim, an insurer who files a declaratory action to determine 

its coverage obligations is within its rights to do so provided there is a 

legitimate question of coverage.9

 

9 Although not at issue on this appeal, we note that in the 

underlying case which gave rise to this appeal, the district court found 

the term “jet ski” in the contract to be “clear and unambiguous in that 

the meaning would be plain to a person of ordinary intelligence and 

understanding viewing the matter fairly and reasonably, in accordance 

with the usual and natural meaning of the words . . . .” In the transcript 

at oral arguments on this issue, the district court stated that in its “best 

view . . . it would be plain to a person of ordinary intelligence and 

understanding that the generic term ‘jet ski,’ as included in the 

insurance agreement in this case, includes the watercraft involved in 

this litigation. So I’m going to grant the motion for that reason . . . .” In 

its memorandum to the district court in support of summary judgment, 

Fire Insurance attached several websites as exhibits, including boat 

reviews and a Wikipedia article among others. 

Neither the lawyer nor the court explains how a personal “best 

view” or a self-selected sampling of websites of questionable reliability 

provides substantial evidence as to how a layman reading the contract 

(cont.)
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DURHAM, J., concurring in part and in the result

29

 

would interpret “jet ski.” As recognized by this court and others, 

lawyers should provide courts with meaningful tools using the best 

available methods when the court is tasked with determining ordinary 

meaning. See FCC v. AT&T, Inc., 562 U.S. 397, 40607 (2011); State v. 

Rasabout, 2015 UT 72, 356 P.3d 1258 (Lee, A.C.J., concurring); State v. 

Canton, 2013 UT 44, ¶¶ 13, 20, 27 n.6, 308 P.3d 517; People v. Harris, 885 

N.W.2d 832, 838–42 (Mich. 2016).

Even though we place great trust in a judge’s discernment, a 

“judge’s confidence in her linguistic intuition may be misplaced. . . .

Though the human language faculty is very good at assessing which 

meanings are linguistically permissible in a given context, human 

intuition is less successful in selecting the most common meaning or 

common understanding.” Stephen C. Mouritsen, Hard Cases and Hard 

Data: Assessing Corpus Linguistics as an Empirical Path to Plain Meaning,

13 COLUM. SCI. & TECH. L. REV. 156, 160–61 (2012) [hereinafter 

Mouritsen, Hard Cases]. When terms are to “be interpreted according to 

their ordinary meaning, they implicate a set of empirical questions, 

many of which are amenable to different types of linguistic analysis. . . .

[I]n the field of corpus linguistics, scholars . . . determine . . . those 

meanings that are consistent with common usage,” or “the term’s 

ordinary or most frequent meaning” based on empirical data rather 

than personal intuition. Id. at 161. These tools for empirical analysis are 

readily available to lawyers and should be used when appropriate. See, 

e.g., Rasabout, 2015 UT 72, ¶¶ 57–134, (Lee, J., concurring); In re Adoption 

of Baby E.Z., 2011 UT 38, ¶¶ 86–105, 266 P.3d 702 (Lee, A.C.J., 

concurring); Brief for the Project On Government Oversight et al. as 

Amici Curiae Supporting Petitioners, FCC v. AT&T, Inc., 562 U.S. 397 

(2011) (No. 09-1279); 2017 BYU Law Review Symposium, Law & Corpus 

Linguistics, 2017 B.Y.U. L. REV. (forthcoming),

http://lawcorpus.byu.edu/; Neal Goldfarb, Words, Meanings, Corpora: 

A Lawyer’s Introduction to Meaning in the Framework of Corpus Linguistics, 

2017 B.Y.U. L. REV. (forthcoming), https://ssrn.com/abstract=2907485; 

Stephen C. Mouritsen, The Dictionary is Not a Fortress: Definitional 

Fallacies and a Corpus-Based Approach to Plain Meaning, 2010 B.Y.U. L.

REV. 1915; Mouritsen, Hard Cases, supra; Daniel Ortner, The Merciful 

Corpus: The Rule of Lenity, Ambiguity and Corpus Linguistics, 25 B.U. PUB.

INT. L.J. 101 (2016); James C. Phillips, Daniel Ortner, & Thomas Lee, 

Corpus Linguistics & Original Public Meaning: A New Tool to Make 

Originalism More Empirical, 126 YALE L.J. FORUM 20 (2016); Neal 

Goldfarb, LAWN LINGUISTICS, https://lawnlinguistics.com/ (last visited 

(cont.)
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DURHAM, J., concurring in part and in the result

30

¶58 Where an insurer files a declaratory judgment action to 

determine its responsibilities in a third-party claim that comports with 

Utah Code section 78B-6-401(1) and Utah Rule of Civil Procedure 11(b), 

the insured is not entitled to attorney fees unless they are provided for 

in the insurance contract. See Call, 712 P.2d at 237–238 (“An award of 

attorney fees is not warranted ‘where the plaintiff merely stated its 

position and initiated this action for determination of what appears to 

be a justiciable controversy.’” (citation omitted)); W. Am. Ins. Co. v. 

AV&S, 145 F.3d 1224, 1230 (10th Cir. 1998) (refusing to award attorney

fees for a declaratory action where “[t]here is no evidence in the record 

that West American did not file this action in good faith or was 

stubbornly litigious”).

¶59 However, the right to bring a declaratory judgment action to 

determine a coverage question does not relieve the insurer of the duty 

to defend during the pendency of the declaratory judgment action if 

there is a potentially viable third-party liability claim. “[A]n insurer 

may have a duty to defend an insured even if . . . the insurer is 

ultimately not liable to indemnify the insured.” Therkelsen, 2001 UT 48, 

¶ 22. See also Deseret Fed. Sav. & Loan Ass’n, 714 P.2d at 1146; Kay, 487 

 

May 16, 2017) (discussing many contemporary issues regarding corpus 

linguistics and the law and providing links to various online tools and 

resources).

Additionally, both Fire Insurance’s and the court of appeals’ 

reliance on Wikipedia is ill-advised. See Fire Ins. Exch. v. Oltmanns, 2012 

UT App 230, 285 P.3d 802. The article cited as authority for using 

Wikipedia by the majority warns against its use in precisely this kind of 

case, an appeal from a summary judgment. The article specifically 

cautions judges to “exercise care when citing a Wikipedia entry because 

of the collaborative and constantly changing nature of its content,” 

warning that judges “should not rely upon a Wikipedia entry as the 

sole basis for their holding or reasoning or to demonstrate the existence or 

absence of a material fact in the context of a motion for summary judgment.” 

Lee F. Peoples, The Citation of Wikipedia in Judicial Opinions, 12 YALE J.L.

& TECH. 1, 50 (2010) (emphasis added). Further, because Wikipedia is a 

public collaboration it may be a reliable source for possible or 

permissible definitions of terms, but it can never yield reliable evidence 

on which of those possible uses are “common” or “ordinary.” For that, 

some type of empirical analysis is required.
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DURHAM, J., concurring in part and in the result

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P.2d at 855. This duty to defend is defined and governed by the 

insurance contract, and where it exists, the insurer must defend the 

insured until the suit is finalized or there is a declaratory judgment that 

there is no coverage under the policy.

2. First-Party Standard of Good Faith and Fair Dealing

¶60 Because “[n]o relationship of trust and reliance is created by 

the [insurance] contract” in the first-party situation, the insurance 

contract “simply obligates the insurer to pay claims submitted by the 

insured in accordance with the contract.” Beck, 701 P.2d at 800. “The 

Utah Supreme Court has found the nature of the relationship between a 

first-party insurer and its insured to be contractual, rather than 

fiduciary.” Id. at 801. “[T]he insured and the insurer have parallel 

obligations to perform the contract in good faith, obligations that inhere 

in every contractual relationship.” Id. (citations omitted). 

¶61 Although in the third-party context an insurer’s breach of its 

duties as a fiduciary can expose the insurer to punitive damages in tort 

liability, a breach of the implied duty of good faith and fair dealing in 

the first-party context only permits remedies in contract law. See Id. at 

800 (“Without more [than a breach of duties and obligations of the 

parties in a first-party relationship], a breach of those implied or 

express duties can give rise only to a cause of action in contract, not one 

in tort.”). See also Allapattah Servs., Inc. v. Exxon Corp., 61 F. Supp. 2d 

1326, 1328 (S.D. Fla. 1999) (“[D]amages for breaches of a contract are 

generally limited to those that equate to the benefit of the bargain 

intended to be realized under the terms of the contract, or, in other 

words, that which the non-breaching party would have received had 

the contract been performed . . . .”); Walsh v. Ford Motor Co., 627 

F. Supp. 1519, 1523 (D.D.C. 1986) (“The central purpose of damages in 

actions for breach of contract or warranty is to place the plaintiff in the 

same position he would have occupied had the contract not been 

breached. Consequently, punitive damages are not awarded for mere 

breach of contract, regardless of the motives or conduct of the 

breaching party.” (citing 5A CORBIN, CORBIN ON CONTRACTS § 992 at 5 

(1964); U.C.C. § 1-106(1) (AM. LAW INST. & UNIF. LAW COMM’N); 

Simpson, Punitive Damages for Breach of Contract, 20 OHIO ST. L.J. 284 

(1985)).

¶62 However, the damages recoverable under contract law are not 

constrained by the policy limits. See Beck, 701 P.2d at 801–02 (“Damages 

recoverable for breach of contract include both general damages, i.e., 

those flowing naturally from the breach, and consequential damages, 
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DURHAM, J., concurring in part and in the result

32

i.e., those reasonably within the contemplation of, or reasonably 

foreseeable by, the parties at the time the contract was made. We have 

repeatedly recognized that consequential damages for breach of 

contract may reach beyond the bare contract terms.” (citations 

omitted)). 

¶63 If an insurer denies a first-party claim and the insured brings a 

suit against the insurer, the insurance company does not have to pay 

the claim until a judgment is made by the court. Noting that “[a]n 

insured frequently faces catastrophic consequences if funds are not 

available within a reasonable period of time to cover an insured loss,” 

this court specifically allowed for “damages for losses well in excess of 

the policy limits” when they are “foreseeable and provable.” Id. at 802 

(citations omitted). Thus, while breach of first-party duties by the 

insurer only has remedies available under contract law, the damages 

awarded the insured may exceed the policy limits in the insurance 

contract. See id. at 798 (holding “that the good faith duty to bargain or 

settle under an insurance contract is only one aspect of the duty of good 

faith and fair dealing implied in all contracts and that a violation of that 

duty gives rise to a claim for breach of contract”).

¶64 In the first-party context, the insurer does not have a duty 

beyond the implied duty of good faith and fair dealing. However, this

duty still requires an insurer to “diligently investigate the facts to 

enable it to determine whether a claim is valid, . . . fairly evaluate the 

claim, and . . . act promptly and reasonably in rejecting or settling the 

claim.” Id. at 801 (citations omitted). But as a party to a contract, 

“[w]hen a claim is fairly debatable, the insurer is entitled to debate it.” 

Callioux v. Progressive Ins. Co., 745 P.2d 838, 842 (Utah Ct. App. 1987).

¶65 Because of the potential harm to insureds from an unpaid 

legitimate claim, our case law has recognized that an insurer may not 

deny a claim and require the insured to bring a suit in order to obtain 

coverage unless the question of coverage is reasonable or “fairly 

debatable.” This “fairly debatable” standard has become a term of art in 

first-party claims. See Jones v. Farmers Ins. Exch., 2012 UT 52, ¶ 7, 286 

P.3d 301 (“Farmers defended against Mr. Jones’s causes of action by 

arguing that his [underinsured motorists] claim was fairly debatable.” 

(emphasis added)); Prince v. Bear River Mut. Ins. Co., 2002 UT 68, ¶ 28, 

56 P.3d 524 (“The denial of a claim is reasonable if the insured’s claim is 

fairly debatable.” (emphasis added)); Billings v. Union Bankers Ins. Co., 918 

P.2d 461, 465 (Utah 1996) (“[A] first-party insurer may [not] be held 
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DURHAM, J., concurring in part and in the result

33

liable for breaching the implied covenant on the ground that it 

wrongfully denied coverage if the insured’s claim, although later found 

to be proper, was fairly debatable at the time it was denied.” (emphasis 

added)); Callioux, 745 P.2d at 842 (“When a claim is fairly debatable, the 

insurer is entitled to debate it, whether the debate concerns a matter of 

fact or law.” (emphasis added) (citation omitted)). The use of this term 

of art in our first-party case law predates our 1997 amendment to Utah 

Rule of Civil Procedure 11(b), 10 which requires a similar standard. 

However, in addition to the rule 11(b) requirements, the “fairly 

debatable” standard in first-party insurance claims also incorporates 

“the implied contractual obligation to perform a first-party insurance 

contract in good faith,” which “contemplates at the very least, that the 

insurer will diligently investigate the facts to enable it to determine 

whether a claim is valid, . . . fairly evaluate the claim, and . . . act 

promptly and reasonably in rejecting or settling the claim.” Beck, 701 

P.2d at 801.

 

10 Utah Rule of Civil procedure 11(b) states that

[b]y presenting a pleading, written motion, or other 

paper to the court (whether by signing, filing, submitting, 

or advocating), an attorney or unrepresented party is 

certifying that to the best of the person's knowledge, 

information, and belief, formed after an inquiry 

reasonable under the circumstances, . . . it is not being 

presented for any improper purpose, such as to harass or 

to cause unnecessary delay or needless increase in the 

cost of litigation; . . . the claims, defenses, and other legal 

contentions are warranted by existing law or by a 

nonfrivolous argument for the extension, modification, or 

reversal of existing law or the establishment of new law;

. . . the allegations and other factual contentions have 

evidentiary support or, if specifically so identified, are 

likely to have evidentiary support after a reasonable 

opportunity for further investigation or discovery; and

. . . the denials of factual contentions are warranted on 

the evidence or, if specifically so identified, are 

reasonably based on a lack of information or belief. 
FIRE INSURANCE EXCHANGE v. OLTMANNS

DURHAM, J., concurring in part and in the result

34

III. MR. OLTMANNS’ COUNTERCLAIMS

AGAINST FIRE INSURANCE

¶66 Where Mr. Oltmanns—either through negligence, 

inexperience, or a combination of the two—caused injury to his 

brother-in-law while operating a personal watercraft and his brotherin-law sought to recover his expenses associated with the event, Mr. 

Oltmanns was potentially liable for those injuries. Mr. Oltmanns turned 

to his insurer, tendering his defense pursuant to the contract. The 

insurer diligently investigated the claim, but did not defend Mr. 

Oltmanns in the personal injury case during the investigation. “Fire 

Insurance asked Mr. Dalton to continue defending Robert Oltmanns 

and told him that in the event coverage was extended for the July 2006 

accident, Fire Insurance would reimburse him for the costs and fees 

incurred by Robert Oltmanns.” Fire Insurance admits that they “did not 

offer or propose to defend the claim.” Mr. Oltmanns argues that the 

insurer should not have requested a declaratory judgment action 

because the ambiguity in the contract is presumed to be interpreted in 

his favor. Mr. Oltmanns claims that the Fire Insurance inappropriately 

relied on outside counsel in its decision to file a declaratory judgment. 

Mr. Oltmanns also claims that Fire Insurance breached its duty of good 

faith by failing to assume the defense while deciding whether the 

incident was covered. We address each of these claims in turn.

A. Mr. Oltmanns’s Claim for Attorney Fees for the

Declaratory Judgment Action

¶67 One remedy that Mr. Oltmanns seeks here is a right to recover 

attorney fees in the declaratory judgment action under contract law, 

claiming that Fire Insurance should not have requested a declaratory 

judgment action. Utah courts do not allow recovery for attorney fees 

“in the ordinary lawsuit unless it is provided for by statute or by 

contract,” Am. States Ins. Co. v. Walker, 486 P.2d 1042, 1044 (Utah 1971), 

or “where they are a legitimate item of damages caused by the other 

party’s wrongful act,” W. Cas. & Sur. Co. v. Marchant, 615 P.2d 423, 427

(Utah 1980). This court has applied that standard in the case of 

insurance contracts where attorney fees have been awarded “in [a] 

declaratory judgment action” if “the insurance company acted in bad 

faith or fraudulently or was stubbornly litigious.” Walker, 486 P.2d at 

1044; see also Doctors’ Co. v. Drezga, 2009 UT 60, ¶ 38, 218 P.3d 598 (“The 

rule that attorney fees will not be available to a prevailing insured 

following an action for declaratory relief unless an insurer is found to 
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DURHAM, J., concurring in part and in the result

35

have acted fraudulently, stubbornly or in bad faith remains 

undisturbed. Nor do we intend to abandon the caution that Utah courts 

have long shown regarding the awarding of attorney fees.”).

¶68 We affirm the court of appeals’ affirmance of the district 

court’s grant of summary judgment to Fire Insurance on this claim and 

deny Mr. Oltmanns’s request for attorney fees for the declaratory 

judgment action. Because of the potential liability that is at stake for 

insurers in third-party cases, insureds face a very high bar in proving 

that an insurer filed a declaratory judgment in bad faith or to be 

stubbornly litigious. In this case Fire Insurance relied on the advice of 

outside counsel. Even though outside counsel believed that Fire 

Insurance would prevail, he advised Fire Insurance to file a declaratory 

judgment action to determine coverage. Fire Insurance was “entitled to 

seek a declaratory judgment as to its obligations and rights,” Farmers 

Ins. Exch. v. Call, 712 P.2d 231, 237 (Utah 1985) (citation omitted).

Attorney fees for a declaratory judgment action brought in compliance 

with Utah Code section 78B-6-401 and Utah Rule of Civil Procedure 11, 

and not provided for in Mr. Oltmanns’s insurance contract, are 

unavailable. See also UTAH CODE § 78B-5-825(1) (not awarding 

“reasonable attorney fees” unless “the court determines that the action 

or defense to the action was without merit and not brought or asserted 

in good faith”). 

¶69 Additionally, Mr. Oltmanns waived the right to argue that Fire 

Insurance acted in “bad faith or fraudulently or was stubbornly 

litigious” when it brought a declaratory judgment action for whether 

the “jet ski” exception applied in his situation. He did so by stipulating 

in its brief to the court of appeals and to this court that “Fire Insurance 

was within its rights to file for declaratory relief. For this, it had the 

advice of counsel,” noting that “no one contended” in the district court 

that “Fire Insurance [did not have] the right to seek declaratory relief.”

In fact, in Mr. Oltmanns’s briefing, his main contention is that Fire 

Insurance breached its duty because “[a] reasonable response would 

have been to assume defense of the Blackner action.” Failure to assume 

the defense does not mean that Fire Insurance breached its duty by 

filing a declaratory judgment. “What Fire Insurance got [from counsel] 

was a recommendation to file for declaratory judgment. Fire Insurance 

argued over-and-over in the trial court that it had the right to seek 

declaratory relief. No one contended otherwise. However, it never 

occurred to Fire Insurance that it could argue the coverage question 

while at the same time defending its insured.” (Emphasis added.) Mr. 
FIRE INSURANCE EXCHANGE v. OLTMANNS

DURHAM, J., concurring in part and in the result

36

Oltmanns’s briefing shows that he seeks a remedy for breach of duty to 

defend through an award of attorney fees for the declaratory judgment 

action. This is not how the law works. Mr. Oltmanns therefore waived 

the argument that Fire Insurance brought the declaratory judgment 

action in bad faith and seeks damages pertaining to the attorney fees 

for defending the declaratory judgment action only under contract law; 

this request is without merit. There are no disputed material facts that 

indicate that Fire Insurance acted in bad faith in filing the declaratory 

judgment. Thus, summary judgment was appropriate for this claim.

B. Mr. Oltmanns’s Claim of Bad Faith for Relying on

Opinion of Outside Counsel

¶70 Mr. Oltmanns also claimed that Fire Insurance impermissibly 

relied on the allegedly flawed advice of outside counsel. Thus, he 

argues, Fire Insurance did not fairly evaluate his claim and 

unreasonably rejected it. We agree with the court of appeals that “[a]n 

insurance company may reasonably and fairly rely, at least initially, 

upon a coverage opinion from qualified outside counsel, received in the 

course of careful investigation and evaluation of a claim.” Fire Ins. Exch. 

v. Oltmanns, 2016 UT App 54, ¶ 15, 370 P.3d 566. Mr. Oltmanns thus 

does not prevail on this claim.

C. Mr. Oltmanns’s Claim for Breach of Duty to Defend

¶71 Mr. Oltmanns argued in its operative complaint in the district 

court and its briefing to the court of appeals and this court that “Fire 

Insurance breached its duty by failing to assume defense of the 

Blackner action” breaching “both contractual and implied duties.” 

However, Mr. Oltmanns failed to preserve this argument in their 

memorandum in opposition to Fire Insurance’s motion for summary 

judgment.

¶72 The Utah Rules of Civil Procedure at the time required that 

“[t]he motion, memoranda and affidavits [filed in summary judgment 

actions] shall be in accordance with Rule 7.” UTAH R. CIV. P. 56(c) 

(2014).11 Summary judgment was required “if the pleadings, depositions, 

answers to interrogatories, and admissions on file, together with the 

affidavits, if any, show that there is no genuine issue as to any material 

 

11 Both rule 56 and rule 7 were substantially modified in 2015 to 

more closely follow the style of the Federal Rules of Civil Procedure. 

We use the 2014 rules in place at the time the memoranda were filed.
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37

fact and that the moving party is entitled to a judgment as a matter of 

law.” Rule 7(c)(3)(A) requires that “[a] memorandum supporting a 

motion for summary judgment shall contain a statement of material facts 

as to which the moving party contends no genuine issue exists.” Rule 

7(c)(3)(B) requires that “[a] memorandum opposing a motion for 

summary judgment shall contain a verbatim restatement of each of the 

moving party’s facts that is controverted, and may contain a separate 

statement of additional facts in dispute.” 

¶73 Fire Insurance submitted a memorandum in support of their 

motion for summary judgment, which included statements that 

“Oltmanns tendered defense,” that “Fire Insurance asked [Oltmanns’s

attorney] to continue defending Robert Oltmanns,” and “that in the 

event coverage was extended, . . . Fire Insurance would reimburse him 

for the costs and fees incurred.” In Mr. Oltmanns’s memorandum in 

opposition to Fire Insurance’s motion for summary judgment, Mr. 

Oltmanns does not use these facts to raise a breach of the duty to defend 

claim as an additional fact in dispute. Although Mr. Oltmanns raised 

this claim in his operative counterclaim, this does not nullify the 

mandate of rule 7(c)(3)(B) to restate controverted claims and raise 

“additional facts in dispute.”

¶74 Because the claim was not raised as a disputed material fact in 

Mr. Oltmanns’s opposition memorandum, it was not preserved. The 

claim for failure to defend was not properly presented to the district 

court in its opposition to summary judgment motion, so the court was 

not properly put on notice that it should rule on the failure to defend 

claim separately from the claim regarding the declaratory judgment 

action. See Donjuan v. McDermott, 2011 UT 72, ¶ 20, 266 P.3d 839 (“To 

properly preserve an issue for appellate review, the issue must be raised 

in the district court. Additionally, the issue must be specifically raised, in 

a timely manner, and must be supported by evidence and relevant legal 

authority. The purpose of the preservation requirement is to put the 

district court on notice of an issue and provide it with an opportunity to 

rule on it.” (citations omitted)).

¶75 I would affirm the court of appeals’ decision to uphold the 

district court’s grant of summary judgment, but do so on alternate 

grounds. Mr. Oltmanns waived his argument that Fire Insurance 

breached the implied covenant of good faith by bringing the 

declaratory judgment action when he conceded that it was merited in 

his brief to the court of appeals and his brief to this court. Therefore, 

summary judgment on behalf of Fire Insurance was appropriate.
FIRE INSURANCE EXCHANGE v. OLTMANNS

DURHAM, J., concurring in part and in the result

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